Is Shareholder Activism Just Shareholder Interest?

“How do you know a corporate board is effective? Look to the number of activist investors it attracts.” – McKinsey

…or perhaps shareholders are merely interested and engaged in the affairs of the organisation.

Unfortunately, that is not the trend.

Normally satisfied shareholders are quiet shareholders. Most do not even read the published reports or attend annual general meetings. In fact, one of chartered secretaries biggest headaches can be to ensure a quorum at shareholder meetings.

Gibson Dunn tracked shareholder activism activity involving NYSE- and NASDAQ-listed companies with equity market capitalizations above $1 billion during the first half of 2017 and found that the companies targeted in one year had increased from 38 to 50 with the number of activists growing from 35 to 41.

When investigating the reasons for activism the trends indicated:

The majority entailed changes to board composition, including gaining representation on the board

Changes to business strategy

Goals related to mergers and acquisitions

General governance initiatives

Changes in management (although less common)

The old saying keep your friends close and your enemies even closer hold true as in essence activists want to be heard and they are using the forum available to them being the annual general meeting.

Companies should have channels for communication other than general meetings and embarrassment on several levels could be avoided.